PayPal (PYPL, Financial) will be reporting its third quarter earnings results after the market close on Oct. 20. Wall Street is expecting the company to report a consensus EPS of 35 cents with revenue of $2.65 billion for the quarter.
Last year PayPal reported $2.3 billion in revenue, a growth of 15%, while revenue for the first two quarters of the current fiscal grew by 19% and 15%.
The market clearly expects growth numbers to be in the high double digits, and the company has guided for 19% to 21% growth on a currency neutral basis. PayPal raised its full year revenue numbers to the range of $10.75 billion to $10.85 billion from the previously announced range of $10.5 billion to $10.7 billion.
One of the biggest success factors for PayPal this year is that its total payment volume (TPV) has been growing strongly, hitting 31% year-over-year growth on a currency neutral basis during the first quarter and 29% in the second quarter. Naturally, for a payment-processing company, the higher the volume that is handled, the higher the overall revenue.
New customer acquisition has been strong so far this year with PayPal ending its second quarter with 188 million active customer accounts, adding 11 million active accounts in the last six months. The other key transformation that is happening behind the scenes is the increasing contribution from PayPal’s Merchant Services. In the third quarter of 2015, TPV of Merchant Services represented 80% of the total volume, which increased to 83% of overall payment volume in the second quarter.
It must be noted that Merchant Services’ contribution is increasing while PayPal’s overall revenue numbers are going up at double-digit rates. As more merchants start using PayPal for their transactions, it will naturally lead to more consumers using the service as well, increasing their overall reach in the long term. As such, this will be a key metric to watch during the third quarter earnings.
PayPal has also been steadily increasing its utility in the mobile space, using its digital payment wallet Venmo and through Xoom, a digital money transfer provider the company acquired in the latter part of last year. At the time of acquisition, Xoom services spanned 40 countries, which expanded to 53 by the end of the second quarter. The growth of Venmo and Xoom will play a huge role in solidifying PayPal’s presence in the mobile payments space, which is expected to explode in the next few years.
From a results standpoint the market is not expecting any surprises, and the stock will end up continuing its slow and steady upward movement as long as the company keeps meeting Wall Street expectations. The stock is up by more than 14% in the last 12 months. Both Visa (V, Financial) and PayPal are trading above 30 times earnings; as long as they both keep increasing their respective TPVs, they will stay at these high levels.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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